Jan. 31 (Bloomberg) -- German unemployment dropped more
than economists forecast to a two-decade low in January,
bolstering economic growth as the euro region’s fiscal crisis
prompted companies from Spain to Greece to cut jobs.

The number of people out of work fell a seasonally adjusted
34,000 to 2.85 million, the Nuremberg-based Federal Labor Agency
said today. Economists predicted a decline of 10,000, the median
of 32 forecasts in a Bloomberg News survey showed. In December,
Italy’s jobless rate rose to the highest since 2004, while in
the euro area it stayed at a 14-year high of 10.4 percent.

Germany’s economic expansion has helped soften a slowdown
across the region as companies boost output and hiring to meet
export demand. Still, with governments from Italy to Ireland
toughening spending cuts to plug budget holes and global growth
cooling, Siemens AG Chief Executive Officer Peter Loescher said
on Jan. 24 he expects a “mild recession” in the euro area.

“The upward trend in euro-zone unemployment is dampened by
developments in Germany,” said Martin van Vliet, an economist
at ING Group in Amsterdam. “Elevated unemployment rates in
Southern Europe are partly caused by structural factors, but
also reflect the pain inflicted by the draconian austerity
programs. The high and rising unemployment rates in the
periphery cast a dark cloud over growth prospects.”

Spain, Greece

Germany’s adjusted jobless rate slipped to 6.7 percent in
January from 6.8 percent. In December, the country had the
fourth-lowest unemployment in the 27-member European Union, data
released in Luxembourg showed. At 22.9 percent, Spain reported
the highest jobless rate, while in Greece, the rate was at 19.2
percent in October, according to latest available data.

Italy’s unemployment rate climbed to the highest in eight
years in December as austerity measures helped push the euro
area’s third-largest economy toward a recession, separate data
showed today. The jobless tally rose to 8.9 percent, the highest
since the data began in January 2004.

German growth may help drive the region’s expansion this
year, with gross domestic product forecast to rise 0.8 percent,
according to the European Commission. In France and Italy, GDP
is seen increasing 0.6 percent and 0.1 percent in 2012.

Germany’s “labor market continues to develop positively,”
said Ralph Solveen, an economist at Commerzbank AG in Frankfurt.
“The downward trend in unemployment will fizzle out gradually
over the coming months. Still, Germany will continue to show a
better economic performance than the rest of the euro area.”

‘Good Start’

Today’s report is the latest to suggest the German economy
is weathering a debt crisis that the European Commission says
may push the 17-nation euro area into recession. German business
confidence jumped to the highest in five months in January and
market research company GfK SE predicts consumer sentiment will
increase for a fifth straight month in February.

“We have to recognize that despite the good start this
year, there are domestic and external risks that are real risks
such as the debt problems,” Frank-Juergen Weise, head of
Germany’s labor agency, said at a briefing today. “We still
expect that unemployment in unadjusted terms will stay just
below 2 million on average this year.”

German retail sales still unexpectedly declined in December
as consumers’ Christmas shopping was damped by uncertainty about
the economic outlook, separate data showed today. Sales,
adjusted for inflation and seasonal swings, fell 1.4 percent
from November.

French Consumers

In France, the region’s second-largest economy, consumer
spending dropped in December, partly as rising unemployment
discouraged household demand. Spending fell 0.7 percent from
November, Insee, the statistics office in Paris, said today.
Jobless claims jumped to a 12-year high of 29,700 in December as
President Nicolas Sarkozy prepared to implement a second round
of tax increases.

“The trend for unemployment is for a higher rate in the
next few quarters because the growth picture isn’t sufficient to
generate the number of jobs needed,” said Guillaume Menuet,
senior economist at Citigroup Global Markets Ltd. in London.
“There’s very little sign of an imminent improvement because
uncertainty related to austerity measures.”

In the EU as a whole, the jobless rate held at 9.9 percent
from the previous month, today’s report showed. About 16.5
million people were unemployed in the euro region, up 20,000
from November, the statistics office said.

Summit Frustration

European leaders left a Brussels summit late yesterday with
no accord over how to plug Greece’s widening budget hole and
German Chancellor Angela Merkel voicing frustration with the
Athens government’s failure to carry out an economic makeover.
The leaders agreed to speed up a full-time 500 billion-euro
($658 billion) rescue fund and signed off on a German-inspired
deficit-control treaty.

With euro-region households holding back spending and
global export demand faltering, companies may continue to cut
costs. Loescher said in an interview last week that Europe’s
largest electrical-engineering company faces a “difficult
environment in parts of the world.”

Royal Philips Electronics NV, the world’s largest lightbulb
maker based in Amsterdam, said yesterday that it’s cautious
about prospects for 2012 following the biggest loss in a decade.

“We are cautious about 2012 given the uncertainty in the
global economy, and Europe in particular,” Philips CEO Frans
van Houten said in a statement. “Europe is not a great place
for growth right now.”

Elsewhere today, Japan’s Trade Ministry published data
showing industrial production rose more than forecast in
December as automakers rebounded from flooding in Thailand that
disrupted supply chains. Production figures from neighbor South
Korea today underscored the damage from Europe’s crisis, with
output falling more than predicted.